Australian Dollar to Euro (AUD/EUR) Exchange Rate Trends High on Performance of Construction
In the surprise of the quarter the European Central Bank opted to cut its already low interest rate and introduce a fresh stimulus package. The shocking news has seen the Euro plummet across the board, which has not been aided by ECB President Mario Draghi who admitted his policymakers were far from unanimous. The ‘Aussie’ (AUD) meanwhile is reaping the rewards of a low European bank rate and declining sentiment towards the single currency.
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The Australian Dollar to Euro exchange rate is currently trending in the region of 0.7227.
Wednesday was a particularly positive day for the Australian dollar as a combination of positive Australian and Chinese economic data saw an increased demand for the ‘Aussie’.
The AiG Performance of Service Index increased from 49.3 to 49.4 in August. The most important result in terms of gauging the Australian economic standing was the Gross Domestic Product Data. Having been forecast to have grown by 3.0% those invested in the ‘Aussie’ would have been pleasantly surprised to see actual growth at 3.1%.
Chinese economic data also printed positively. The Non-Manufacturing PMI rose from 54.2 to 54.4, the Composite PMI increased from 51.6 to 52.8 and the Services PMI hiked from 50 to 54.1.
‘Aussie’ strength was also aided by Reserve Bank of Australia Governor Glenn Stevens who gave a speech at the Committee for Economic Development of Australia (CEDA) function in Adelaide. In the speech he announced that a cut to the interest rate is incredibly unlikely as the risk could pose a problem for high house prices.
The Euro also experienced a relatively positive day on Wednesday despite a total of seven negative data revisions. The reasoning for the positive Euro surge was most likely attributed to traders convincing themselves that the European Central Bank would leave the bank rate untouched and not add a stimulus package, which in hindsight was a costly misjudgement.
The Australian Dollar to Euro exchange rate has hit a low today of 0.7101.
Thursday has seen the Australian Dollar rocket against the Euro in response to the unpredictable ECB policy overhaul. Given that Australia has strong trading connections with Europe; the cut rate has bolstered the Australian Dollar considerably.
The European Central Bank elected to cut the interest rate to 0.05%, down by 10 basis points, and introduce a private-sector asset purchasing program. Claire Jones and Thomas Hale, writing for the Financial Times, said; ‘During a press conference, ECB President Mario Draghi revealed a further escalation of the bank’s bid to stimulate the Eurozone’s ailing economy with a programme to purchase a ‘broad portfolio of transparent asset backed securities’ starting from October this year. He also launched a programme of purchases of covered bonds, securities backed by cash flows from mortgages or public sector loans. These schemes would have a ‘sizeable impact on our balance sheet,’ Mr Draghi said’.
Australian economic data has also contributed to the strength of the Australian Dollar. Seasonally adjusted Retail Sales met with the forecast figure of 0.4%, and the Trade Balance fell to -1359 million despite having been forecast to increase to -1750 million.
Friday’s Forecast for the Australian Dollar to Euro Exchange Rate
The AiG Performance of Construction Index is the only Australian economic publication on Friday which holds enough weighting to effect market movement. Unless it posts particularly poorly the Australian Dollar is unlikely to soften considerably after Thursday’s European Central Bank interest rate cuts.
No amount of positive economic data results is likely to curtail the Euro downtrend. However, those invested in the single currency will be hoping that German Industrial Production will meet with the forecast figure of 0.6%, and Eurozone Gross Domestic Product exceeds the flat line figure forecast.
The Australian Dollar to Euro exchange rate has hit a high today of 0.7228.
After the European Central Bank opted to cut all of its interest rates by 10 basis points and introduce further stimulus on Thursday the Euro has plummeted to record lows versus the vast majority of its competitors.
The Australian Dollar rallied on dwindling sentiment towards the Euro having strung together several successful economic data publications. The ‘Aussie’ has continued its bullish behaviour on Friday after the AiG Performance of Construction Index rose to 55 in August from the previous figure of 52.6.
Despite a better-than-forecast German Industrial Production report, which showed a 2.5% growth, Euro movement has been limited by the hangover of the shocking ECB changes.